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What is Identity Theft?
By Cassidy Horton MONEY RESEARCH COLLECTIVE
More than 1.4 million Americans were victims of identity theft in 2021 alone, according to the Federal Trade Commission. But what is identity theft, exactly? And how can you prevent it from happening to you?
Table of contents
- What is identity theft and what to do about it?
- Types of identity theft
- How to prevent identity theft
- How to check for identity theft
- How to report identity theft
- Summary of what is identity theft?
What is identity theft and what to do about it?
Identity theft occurs when someone unlawfully obtains another person’s private information and uses it to open new accounts, make unauthorized charges or withdrawals, or commit crimes. It’s also sometimes referred to as ID theft or identity fraud.
The effects of identity theft can be devastating, often leading to financial ruin and a damaged credit score. Victims may also face difficulty securing loans, rentals, good insurance rates, and even employment.
If you suspect you’ve been a victim of identity theft, it’s important to act quickly by contacting the authorities and taking steps to recover your identity.
Types of identity theft
There are nine types of identity theft you could fall victim to. Here’s a brief overview of each.
Financial identity theft
Financial identity theft occurs when someone uses your personal information — such as your Social Security number, bank account number, or credit card number — for their own financial gain.
For instance, a scammer could take out a loan in your name or open a new bank account. Or they may commit debit or credit card fraud by running up unauthorized charges on your account.
Credit card fraud is one of the most common types of financial identity theft, according to the Federal Trade Commission. Nearly 400,000 cases of credit card fraud were reported in 2021, compared to 131,000 cases of bank fraud.
Medical identity theft
Medical identity theft happens when someone steals your personal information (like your name and healthcare ID number) to get medical care, buy prescription drugs, or submit false claims to insurance companies.
If you’re a victim of medical identity theft, you may:
- Have false information on your medical records
- Be denied insurance coverage
- Be liable for someone else’s fraudulent medical debts
Sometimes, you may not know that you’ve been a victim of medical identity theft until you get a bill for medical services you didn’t receive.
Tax identity theft
Tax identity theft happens when someone uses your Social Security number and birth date to file a tax return without your permission. Usually, the thieves hope to get a tax refund in your name.
Tax identity theft has all types of consequences for the victim. For instance, if someone files a tax return using your personal information, you may not be able to file your own return. Or you may end up owing the IRS taxes on income you didn’t earn.
Child identity theft
Fraudsters can also target children and use their Social Security number to take out a loan, get a job, or apply for government benefits.
Unfortunately, it can be hard for parents to know if their child’s identity has been stolen. This is because children usually don’t have credit reports or credit scores that are actively monitored.
However, some signs to look out for include:
- Receiving calls saying your child has an overdue utility bill
- Being denied government benefits because your child’s Social Security number is already in use
- Getting IRS notifications in the mail saying your child owes taxes
Driver’s license identity theft
This type of theft can happen if your wallet or purse is stolen, and the thieves take your driver’s license along with your other identification. The thieves then have all they need to masquerade as you and commit various crimes, from opening new lines of credit in your name to getting arrested under your identity.
In some cases, a thief may even get a job using your driver’s license information, which can lead to problems for you down the road if they don’t pay their taxes or get into trouble at work.
If you think your driver’s license information has been stolen, you should contact your local DMV and let them know. They will be able to help you get a new driver’s license with a new number, and they can also flag your information in their system so that anyone trying to use it will be flagged as well.
Senior identity theft
These days, seniors are increasingly becoming targets for identity theft and scams. They may receive calls or emails from thieves posing as a representative from Social Security, their bank, or a credit card company, trying to get them to reveal their account information. They may also receive calls or emails from fake charities, asking for donations.
If you’re a senior, or if you have elderly parents or grandparents, it’s important to be aware of these threats and take steps to protect yourself and your loved ones.
Synthetic identity theft
Synthetic identity theft is a fairly new type of fraud that’s on the rise in the United States. It occurs when thieves use a combination of real and fake information to create a new, fictional identity.
These identities can be used to open new lines of credit or take out loans in the victim’s name. And because the information is partially real, it can be difficult for victims to catch synthetic identity theft until it’s too late.
Data breach identity theft
A data breach ensues when a hacker gains access to a company’s or organization’s confidential data. This data can include everything from customer names and addresses to Social Security numbers and credit card information.
Data breaches can have serious consequences for the victims, as their personal information may be used to commit identity theft or fraud. In some cases, the hackers may even sell the data on the black market.
Phishing identity theft
Phishing is a type of online fraud where hackers send fake emails or set up fake websites in an attempt to steal personal information such as passwords, credit card numbers, or bank account information.
Phishing attacks can be difficult to spot, since the emails, text messages, and websites can look very realistic. But there are some telltale signs to watch out for, such as misspellings or grammatical errors, and spoofed email addresses that are similar to but not quite the same as the real website or company. One way to spot phony emails is to look not just at the name on the sender’s email but to look at the address itself. If the domain name (that is, the information to the right of the @ sign) doesn’t point to the company that the email purports to be from, it’s likely a phishing attempt.
If you think you may have received a phishing email, do not respond to it or click on any links. Instead, mark it as spam and then delete it. And if you’re ever asked to provide personal information via email or a website, be sure to verify that the site is legitimate before entering any information.
How to prevent identity theft
There’s no foolproof way to prevent identity theft, but there are steps you can take to make it harder for thieves to get their hands on your personal information.
- Review your bank statements and credit card statements regularly for signs of fraud
- Shred any personal documents before throwing them away — especially if they contain sensitive data like your Social Security number
- Use strong, unique passwords for all your online accounts
- Never give out personal information to anyone who contacts you out of the blue
- Put a credit freeze on your credit file to make it more difficult to open new accounts
- Use a credit monitoring service to get alerted when someone uses your personal information without your permission
- Avoid checking financial accounts on public Wi-Fi. Use your phone’s data or wait until you get home instead.
- Be careful about how much information you share on social media
- Keep your Social Security card, passport, and other important documents in a safe place
- Research unknown charities before making any donations
How to check for identity theft
The primary way to check for identity theft is to review your credit report for fraudulent activity. You’re entitled to free credit reports each year from the three major credit bureaus — Experian, TransUnion, and Equifax. You can request your free copies at annualcreditreport.com.
Unfortunately, many people don’t realize they’ve been an identity theft victim until it’s too late. If any of these situations happen to you, it could be a warning sign of identity theft:
- You receive bills or collection notices for accounts you didn’t open.
- You see suspicious activity on your credit report.
- You get calls or emails from creditors about accounts you didn’t open.
- You are denied a loan or credit card because of incorrect information in your credit report.
- You get unexpected tax bills or refunds in your name.
- You receive calls from debt collectors about debts you don’t owe.
- You find unfamiliar charges on your bank or credit card statements.
- Your medical insurance company denies your claims because your medical ID has been used by someone else.
- Your Social Security number has been used by someone else to get a job or apply for benefits.
- You are contacted by the IRS about suspicious activity on your tax return.
How to report identity theft
If you suspect you’ve been a victim of identity theft, there are some important steps to take to minimize the damage and protect your finances.
- Contact the three credit bureaus and place a fraud alert on your credit report. This will make it more difficult for criminals to open new accounts in your name.
- Contact your financial institutions and close any accounts that have been compromised.
- File a report with the FTC at identitytheft.gov. They will help you create an identity theft recovery plan.
- File an additional report with your local police department.
- Keep detailed records of your conversations and correspondence with businesses and credit reporting agencies. You may need to reference them if you go to court or take legal action.
Summary of what is identity theft?
Identity theft is a serious problem that can have a devastating effect on your finances and your reputation. While all forms of identity theft can be damaging, you can protect yourself by monitoring your credit report, being cautious about providing your personal information online and over the phone, and using strong passwords.
If you suspect you’ve been a victim of identity theft, contact the three major credit bureaus immediately and file a report with the FTC.
Cassidy Horton is a finance writer based in Seattle, Washington. With an MBA and a bachelor's in public relations, her work has been published over a thousand times by The Balance, Finder.com, Money Under 30, Clever Girl Finance, and many more. Cassidy is a self-confessed money nerd who’s passionate about helping people find financial freedom. Oh, and she really loves cats.